Will this “turn-around” Kiwirail?

Some ostensibly good news for Kiwirail today, as Transport Minister Steven Joyce just announced $250m in the upcoming budget, and potentially an additional $500m the next two budgets, as part of a “turn-around plan”. He said the Government was committed to retaining and improving the rail network so that it could cover its own costs within ten years.

Of course, Kiwirail is actually making a modest profit, according to the half-year report, however it’s not enough to cover the cost of capital improvements, which are necessary after decades of under-investment by private owners.

In Thursday’s Budget we are almost certainly going to find out about the closure of several rural lines that don’t meet Joyce’s strict revenue requirements – which will mean more heavy trucks on already dangerous roads, greater fuel dependency, and higher greenhouse gas emissions.

The overall approach is very short-sighted. The Minister’s focus is entirely on revenue, and completely ignores that his other transport policies, such as heavier trucks and the billions he is spending on Roads of National Significance, will actually make it harder for Kiwirail to be a profit-making business.

Since 1993 the National and Labour governments have invested roughly $14 billion in road maintenance and renewal and only $2 billion in rail improvements, so it is not surprising our railway lines are carrying less freight than the trucks on our roads.

Closing lines now, instead of spending money on maintenance, will lead to higher costs in the future. For example, the Rotorua to Waikato line was “mothballed” in 2001 because it needed less than $2 million in repairs. Then in 2008 when a tourism operator investigated reopening the line they found so many sleepers and tracks had been stolen it would cost about $10 million to repair and reopen the line.

Also worrying are the veiled threats he has been making about passenger rail in Auckland and Wellington. It’s far from clear where the money will come from to pay down the interest on the loan for Auckland’s electric trains. If Regional Councils are forced to raise funds through increasing user charges, this may encourage commuters to take their cars instead, which will cause the usual problems in terms of congestion in the short term.

Those of us who adopt a more holistic view of ‘return’ also bear in mind NZ Rail in August 1980 used DX-hauled Akl-Wlg train#661 to show that moving 1 tonne of freight by rail was 4 times more fuel efficient than on road, 7 times more fuel efficient than by coastal shipping and 125 times more efficient than aircraft.[1] The US is currently becoming aware that 1 gallon of fuel can move 1 ton of freight 480 miles by rail vs 130 by road (similar ratio).[2] This is going to become very important if we are to prepare for the post cheap-oil, climatically changed environment.

What is spectacularly interesting is that in NZ *only* rail is still using the same motive power in 2010 as was used in 1980! And that the same Akl-Wlg trip, despite the easements associated with the late ’80s electrification now takes 4.5 hrs longer than road! [So much for the legacy of private ‘investment’.]

“They are not held to account to recover interest on the value of the land they occupy, as rail is.”

Frog, I am pretty sure you have it wrong on this one – if rail was required to recover interest, then Kiwi Rail would be expected to earn a profit of nearly a billion dollars per annum (the rail network is valued at a ludicrously high eleven billion dollars).

FYI, the State Highway network is only valued at twenty billion dollars.

“the roads carry far more traffic and so the funding is reasonably balanced around the different users and the economic benefits they bring. Much more money is spent on roads as they are far more useful and so have much more traffic.”

What a neat piece of circular logic! More people use the roads because they are more useful. Because roads are more useful, more people use them! More money is spent on the roads because more people use them. How can anyone argue with that? I do not like them Sam I Am! Oops, wrong children’s story 😉

Could it be that because more money is spent on the roads, more people use them? Have you car enthusiasts factored in the lost productivity to the country of all the hours of driving (and waiting in traffic jams) people do when they could be reading, writing, having meetings, or resting on a train while one person does the driving for hundreds? Have you factored in the cost of emergency services and health care to deal with all the car accidents that come about as a result of all that driving? When was the last time ACC spend public money on ad campaigns to reduce train accidents?

Oh, and don’t start claiming those ads are a silly expense anyway, because the research shows that the campaigns work, and that the reduction in accidents valued *only in dollars* (not counting lives lost, which cannot be monetized) more than pay for the ad campaigns.

Frog, if you took away the railway lines the land would still have the same value that it does when covered by tracks. But if you take away all our roads/highways that land, and most of the land accessible from the roads, would lose most of its value. If you want roads to earn a return on capital you will need to impose a capital gains tax on the adjacent land or value the land occupied by roads and highways at it’s “backblocks” capital value, ie the capital value of land remote from good roads and highways, rather than, as the STCC and Transit do, valuing the land at the same value per hectare as prime land immediately adjoining roads and highways.

I believe Vogel intended that the capital gains tax approach was supposed to have been used to recover the public works loans spent on railways and roads (to open up Crown land for settlement.)

Liberty, also you are totally wrong about roads making a profit — this is clear in the MOT Surface Transport Costs and Charges report and the Rockpoint report on coastal shipping. They are not held to account to recover interest on the value of the land they occupy, as rail is. Plus, road transport has a lot of environmental and safety externalities relative to rail. If we internalised the externalities of trucks we would see more freight moving by coastal shipping and rail.

As a bonus, if we internalise all these externalities, the transport system that is the backbone of our economy would be more resilient to oil price shocks, which will be coming again quite soon.

@Liberty Scott. I think Gareth’s point about Dominion Road is that we should be putting money into infrastructure projects where there is demonstrated demand. Why are we spending so much money in an area where there isn’t much demand? The marginal costs are huge relative to the benefits.

The biggest subsidy to road use is parking. It is not paid for by the state, but government regulations force parking to be provided with all new buildings, creating a massive oversupply that both reduces the density of development and acts as an incentive to commuters to use their cars when it is not the most economically efficient choice. Parking is costing this country $10b a year — but it’s been shifted from the transport sector to the real estate sector.
Here’s a paper on it by a right wing think tank that you might like, LS: http://www.fcpp.org/publication.php/2839

So, we’re idiotically paying through the nose to expand capacity to deal with peak hour congestion, when the marginal costs are huge. That is where rail in particular in urban areas makes a lot more sense – marginal costs are low and getting lower as the population grows.

If you get rid of parking regulations, manage and price parking more effectively, and stop ramming motorways through valuable urban areas, many more people will walk, cycle and take public transport. We know that from econometric studies of price sensitivity to parking, and from history (land use and transport were integrated in a much more efficient way before the car-oriented planning and funding craziness of the 50s).

@Swampy. National never had a plan to charge more directly for road use. When Maurice Williamson floated the idea of congestion charging he lost the transport portfolio, because the Nats are too populist to put a good idea in place if it requires explanation to the public.

Given that roads are a natural monopoly, I think it makes a lot more sense to keep them publicly owned, and charge more directly for their use.

“The main part of North Auckland they are talking about is north of Whangarei where there is practically no traffic at all.”

Swampy, according to information from Kiwi Rail, the entire North Auckland Line from Helensville is under threat – not just the section past Whangarei. If it was just the section past Whangarei and the Dargaville Branch under threat, then it would fall into the same category as the other three lines.

The reason we are subsidising road transport is because no left wing politician will ever, ever, ever let it be run on a full cost recovery basis. Which side of the political fence did all the nonsense opposition come from to National’s previous plans to corporatise roads?

Cant find any reference to the NRAA still being in force or not. It would appear by default that the single entitiy called KiwiRail (incorporating Ontrack) has a monopoly rights access to the steel road network.

No private freight operator is going to buy a trainset while its main competitor in the rail freight business holds the access rights to the track as well.

So the monopoly situation that Toll had (and now appears to be KiwiRail) is continuing with the added constraint for private freight transport operators that a seperate entity for rail network access is no longer independent.

“National Rail Access Agreement between Ontrack and Toll Holdings is no longer in force.”

So now you are saying my original comment was right, the one you called “rubbish”..? It seems to me that anyone can buy a train and operate it as long as they pay Kiwirail a track access charge, but the road companies would be crazy to run trains when they have a Transport Minister handing out multibillion dollar highway contracts like they were lollies…

Gareth: It is disingenuous to claim a company is making a profit only after enormous amounts of subsidies. Air NZ makes a profit with no subsidies, NZ Post makes a profit with no subsidies, the electricity SOEs do so too. All of them might claim “public good” as well, yet survive by their customers paying for them to operate and expand.

Yes of course the state highway network makes what is equivalent to a profit. A profit is surplus generated after operating expenses, and the RUC and fuel tax generated from using it is always enough to maintain that network and provide surplus to make improvements. The rail network has not done this in decades. You might argue how that surplus is spent (in the UK most of it is used for general government spending), but it is still a surplus.

You can trot out “subsidy” for the road network as an argument but you cannot back it up based on infrastructure costs.

Your comparison of Puhoi to Wellsford (not a good capital project in my view) to Dominion Road is meaningless. If you were building Dominion Road today from scratch (assuming the land was built on) it would cost easily the same, and is a fraction of the length. It is a total non-sequitur.

I know the Greens have a peculiar love of railways and like to damn road transport as a matter of course, but nobody can pretend that roads are not financially self sustaining, and railways have been so for many decades. Equally, it is a myth that even if RUC was doubled or more that it would rescue the railways, it would have an effect on the margins, but the real economics of rail vs road are inherent.

Rail is good for bulk or containerised long haul freight, road for virtually everything else. Nothing is going to change that, the last 50 years have seen that trend continue.

“Just looking at passenger trains; what has happened is that most people now have cars and use them instead of the train (or fly for longer distances).”

Also don’t forget that many of those passenger trains were doomed from the instant that buses started becoming more commonplace; sitting in a mixed train on a branch line in a train carriage that wasn’t heated was not going to be appealing to people other than rail enthusiasts. The other thing that really killed off passenger rail in this country was the purchase of the Fiat Railcars – they had a lot of mechanical problems, and as they fell over like flies, the services that they operated died. Had something more hardy been purchased, it is likely that the bulk of our passenger services would have survived until either the 1990s or even the 2000s, and we might still have passenger services on more of the network today.

A point that I also forgot was that in almost every Western country, their railway networks were significantly pared back in the post-war period – largely for reasons that have been posted above.

Just looking at passenger trains; what has happened is that most people now have cars and use them instead of the train (or fly for longer distances).

The sad thing is its much easier to lose train services than get them back. To lose the services all that was needed was for people to start driving their cars or flying more; the necessary alternative infrastructure (roads etc) was already in place. Now, even if people would like to use the train, the infrastructure would need to be rebuilt. If new passenger services are opened, then they’ll initially have to run at a loss until enough people switch back to the train from whatever other form of transport they were using. Can you see this happening with the current government (or Labour)?

Jingyang, prior to World War II, the New Zealand road network was not suitable for the easy shipping of freight; almost all roads were unsealed, and many bridges had weight restrictions. While work had been underway to improve the condition of the Main Highway network, nevertheless, the roads were nowhere near the condition that they are today.

Also, much of the branch line network in New Zealand wasn’t even viable in the 1940s period – almost all of the branch lines made losses on an annual basis, and once competition (from trucks) started getting a foothold, it became a lot harder to justify the retention of loss making lines. This was especially so when railways had to make the transition from steam to diesel.

What I can’t work out from any information that I have seen, is how NZ could afford to have/support 1000’s more miles of railway lines right up to World War Two, when the country had a population of about 1.6 million, yet now we have a population of 4.2 million it is argued that we can’t afford/support what little we have left?

Actually Toad, the problem isn’t to do with the stations – the stations don’t take that much time to construct. The problem is at Kiwi Rail’s end – they need to get all the level crossings up to scratch.

I have always felt since its inception that Project DART was about telling Auckland’s commuters as little as possible, for fear that putting timelines on the rail projects may create expectations.

Funnily enough, the signs on the carriages still all say the Onehunga line will be recomissioned “mid-year”. The original target was July. Now it seems to be September. And we can’t blame the RMA for that – just the failure to get the consent applications for the Onehunga Station development and associated work in on time.

The Project DART website is a strange one, a few months ago out of the blue it said that the Onehunga Line (proposed opening date at the time of July 2010) was going to open in early 2011! After much teeth gnashing that was changed…. and it seems that it’ll now be open in September this year.

Gerrit, given the lack of updating on the Project DART site, I wouldn’t be surprised if the site has not been updated for some time. The comment about Toll holding exclusive rights has not been true since 2008 and it is time that Ontrack got up with the play.

Coastal shipping which is totally unsubsidised and at the mercy off monopoly ports chasing the big overseas lines and intermittant service by foriegn ships, should be encouraged long before rail. If a fraction of the money spent on rail or trucking was spent on a subsidy for feeder ports alongside main port terminals and NZ coastal ships we could save energy and costs of transport. Rail subsidies are simply forcing coastal shipping out of the picture. As for trucking, that is heavily subsidised by rate payers. Trucking advocates conveniently forget they do not only use state highways when adding up trucking road costs.

The lines slated for closure serve small populations carrying little freight. Road transport has largely superseded them along with coastal shipping.

You will never get any change in road funding policy because leftie local body politicians will never give up control of road building (remember when National tried to equalise road funding in the 1990s, where the opposition mostly came from) and therefore rates will be paying for roads forever. Now that we’ve got that out of the way, the roads carry far more traffic and so the funding is reasonably balanced around the different users and the economic benefits they bring. Much more money is spent on roads as they are far more useful and so have much more traffic.

@ Liberty Scott comments on the Kiwirail profit. They are making a profit, sure it’s a modest one and there is central and local funds involved but it’s a well established practice reflecting the ‘public good’ that rail brings.

This $4.6 billion turn-around plan of course is mostly funded not through Government largess ( described by the right as Joyce’s ideological burp) that’s only $250 million, with the possibility of $500 million but of course the $3.85 billion is to come from KiwiRail’s own profits. Kiwi Rail clearly is and will continue to make profits and the Govt will only be contributing less than 16% of the total ‘turn-around’ plan.

I think one argument why we believe it is important for the Government to subsidise rail is because we are currently subsidising road transport. If we looked at the whole transportation system as a network, and cut the subsidies for road use, we would find that demand for rail would increase. It’s pretty obvious that subsidising substitutable transport modes is inefficient.

The motorway network does not generate profits. The Minister likes to claim that full hypothecation means that road users pay their own way. Even though (in theory) the money used to pay for the RONS will come from road users through RUC and Fuel taxes (though if fuel prices rise demand may diminish to the point that we won’t raise the money that has been forecast), that doesn’t mean it is the most effective use of their money. There is no way though that this could be described as a profit making enterprise. Let’s put it this way — Puhoi to Wellsford will carry less traffic that Dominion Rd in Auckland, but it will cost $1.4b.

I am pretty sure that the only deal that the government made with Toll was the six year lease free period on the transshipment facilities and not any exclusive we can only ship your freight type arrangement. There are rumours that Mainfreight are pretty keen to use rail to ship their freight around, for instance.

Toll NZ freight and passenger rights are subject to ‘use it or lose it’ provisions. New operators will be able to operate long-distance passenger services on routes not serviced by Toll NZ from July 2007.

Other operators can exercise their existing access rights on the network, and can be granted access rights to line segments where Toll NZ is unable to meet its ‘use it or lose it’ obligations, or does not take up its right to operate over new sections of the network. In such circumstances ONTRACK will grant access rights to new operators on a non-exclusive basis. Heritage operators will negotiate with ONTRACK for the use of the network.”

These provisions were not as monopolistic as you are making it out to be, Gerrit. I think the current state of play reflects that Toll is not exclusively accessing the rail network. Also, KiwiRail has since purchased the Wellington Metro services from Toll.

Freight trains are run by Toll Rail. Toll holds exclusive freight rights until 2070 following an agreement with the Crown signed in 2004. The agreement allows for passenger trains to run in certain areas, such as the Taieri Gorge Railway, which runs tourist trains from Dunedin.

Cullen was even dumber than I thought. Not only bought the rail system for about 700 million more then value, it signed away the freedom to use the tracks by any other operator (for freight) for another 66 Years.

Where the greens not aware of this ???????????????

So Ontrack has one customer Kiwirail who has one feight customer, Toll Rail.

How dumb are we to tie up a National Road for the exclusive use by one private company and supply that one company with both a state owned and run roading corridor PLUS locomotives, rolling stock and staff.

Bit like giving Mainfreight exclusive use of the tarseal roading network, buying them their trucks and paying their drivers.

And the Greens are promoting rail freight for this private enterprise sole operator??

Gareth: Be nice if you were more open about the facts:
1. “Kiwirail is actually making a modest profit”. page 7 shows a loss of $136million or so before Crown/regional council funding. Hardly a genuine profit.
2. “decades of under-investment by private owners” Decades? Just over 1 in fact, and the under-investment myth was fisked by Dave Heatley of ISCR which showed that it was little different under public ownership in the years before privatisation (or in the four years since renationalisation of the track). I can give a very very long list of examples of assets that the state owned NZR ran into the ground, indeed the current generation of Wellington electric units were only bought in the early 1980s because the wooden bodied carriages that were covering some peak services were becoming impossible to patch up. It was not as if NZR ever got anything like the capital spending it wished for, ever.
3. “which will mean more heavy trucks on already dangerous roads, greater fuel dependency, and higher greenhouse gas emissions” John-ston makes the point that nobody will notice it.
4. “Since 1993 the National and Labour governments have invested roughly $14 billion in road maintenance and renewal and only $2 billion in rail improvements, so it is not surprising our railway lines are carrying less freight than the trucks on our roads” The railways have carried less freight than trucks for many decades, it has nothing to do with what government spends, it has everything to do with most freight tasks being short distances and less than an economic train load of freight. Railways stopped being able to do everything better than roads in the 1930s.
4. “Rail could have a significant future in New Zealand” no it will have a niche future, it is called long haul containerised and bulk freight, and commuter services in Wellington and Auckland. For most freight and nearly all passenger movements it is irrelevant, indeed much of its freight business wouldn’t go by road anyway, it would go by sea (which is more environmentally friendly).

You have your way, a huge amount of money from hard working taxpayers and businesses is going into a network that will serve a minority of businesses and passengers, and will have virtually no impact on transport externalities. Nelson and Queenstown have thrived regardless of there being no railway. Let’s focus the network on doing what it does well, which means frequent train loads of freight point to point meaning containers, coal, logs, milk and a few other commodities. However, anything that involves a wagon load or less will never go by rail.

Gerrit has a great point, it is time to allow others to buy their own rolling stock and run trains. The idea that the state owned Kiwirail knows best is something it will ALWAYS say, but it simply isn’t true.

Time to have some clear thinking about this. The Nats are giving the rail network its LAST chance to do the only thing it can do well. The rail network has had multiple bailouts over thirty years, and has every time come back for more, it’s about time it was acknowledged that NZ cannot afford a rail network like it once had. It is a capital intensive bespoke high density transport network in a country with very low population density and little bulk commodity traffic over long distances.

If you want to achieve environmental goals in transport, you’d stop opposing foreign ships carrying domestic cargo in transit (why stop otherwise half empty ships carrying cargo on trips they do anyway?) and you’d support larger trucks operating on any roads that can physically carry them when it isn’t parallel to a railway for longer than say 50kms (which could be done using GPS technology as in Australia).

Gareth, the four lines slated for closure will not result in any of that in any significant degree. Here are some facts for you

The Wairarapa Line has (outside of Pahiatua to Woodville and Masterton to Wellington) not generated any unique traffic since 1988. It was only kept open because until two years ago, it was the only route to Napier that was able to ship hi-cube containers. Thus its mothballing will not generate a single additional truck.

The Stratford to Okahukura Line has already been mothballed, and apparently all the traffic that used it has been happily using the alternative run provided by Kiwi Rail. Fonterra was the main customer on that route, and they seem happy with the current state of affairs. You might get a handful of additional trucks, but that is a drop in the bucket compared with what currently uses State Highway 3.

The Napier to Gisborne Line only has two return freight trains a week, which together might be thirty or forty wagons worth – is an extra five truck trips a day something to write home about? Of course not, so this lines mothballing isn’t going to be a problem in that regard either.

In terms of the North Auckland Line, this is an area of concern – there are currently five return trains a week, plus there are often extra services. Each train ships about twenty or thirty wagons worth – it is here that your argument starts stacking up.

“Since 1993 the National and Labour governments have invested roughly $14 billion in road maintenance and renewal and only $2 billion in rail improvements, so it is not surprising our railway lines are carrying less freight than the trucks on our roads.”

How much of that $14 billion was paid for by road users? I think you would find that all central government road investment has been paid for by road users. How much of that $2 billion was paid for by rail users? In terms of the railway not carrying as much freight as the trucks on our roads, you can equally point the finger at rail – in the post-war period, New Zealand Railways wasted millions of Pounds and millions of Dollars on wasteful projects – they ordered fleets of trains that had maintenance problems, they had thousands on the payroll who were doing nothing, they kept branch lines that were carrying little more than air open for much longer than necessary. Had NZR spent all that money on things such as further realignments, loop extensions and upgrading axle loads, then it would have a much larger market share today than it does.

“For example, the Rotorua to Waikato line was “mothballed” in 2001 because it needed less than $2 million in repairs.”

For the record, the Rotorua Branch Line was only kept open for the operation of the Geyserland between 1999 and 2001; it would have been mothballed even if it didn’t need any repairs.

In terms of the overall package, I am of the view that it is a step in the right direction – Kiwi Rail need more wagons, more locomotives and they need a massive focus on the Auckland to Christchurch corridor. They can start off with trying to restore the 24 service that Tranz Rail had (it was so named because it did Auckland to Christchurch in 24 hours). Personally, I don’t think that the branch line closures will happen in the proposed manner – forestry will probably save Napier to Gisborne; the North Auckland Line will probably get saved by Marsden Point (although the Moerewa and Dargaville Branches are probably due to be mothballed); inevitable capacity problems on the Taumarunui to Taihape section of the North Island Main Trunk will probably save the Stratford to Okahukura Line (the easiest way to solve those is to get Taranaki freights out of the way), while I do think that Pahiatua to Masterton is probably doomed.

The problem with Ontrack is that they have only one customer, KiwiRail.

What they need is more customers to buy trainsets and run on their network. I’m sure that the Mainfreights, Owens Transort, Halls Refrigerated, etc would have no problems buying trainsets instead of trucks and run on the steel roads serviced by Ontrack.

We still seem to be stuck on the concept that only KiwiRail can run on Ontrack steel roads. Why is that?

If we were to treat the steel roads the same as tarseal ones, utilisation would increase marketly.

To continue to provide steel roads for the exclusive use of one customer is nattow vision in the extreme.

Open the steel roads up like the tarseal ones and see the road transport lobby get behind rail for long haul operations.

Much like the liquid road called the Cook Straight is more competitively uitlised since Bluebidge took on the incumbent sole trader.

The road transport companies combined to buy ships, it would not be unrealistic to see them combine to buy trainsets as well.

“Mr Joyce hinted yesterday that the Government will reduce its operating contribution to national rail operator Kiwirail, and demanded that regional councils and customers “stand up” and pay more to ensure the commercial viability of rail services.”

This exposes yet another of the NACT’s methods of forcing Auckland, Wellington and other regions to privatise their assets, (ports, airports, water) to fund public transport. We already have Super Auckland jerrymandering, disenfranchising ECan voters and creation of private water rights, now we will have forced funding via asset sales

I think focussing on upgrading the NIMT is good and if it involves track easements and passing loops that is great, these are the knid of transport projects that actually provide excellent economic benefits but politicians avoid like the plague as they aren’t big, shiny projects that politicians can point to (like pulling money out of rural road maintanance for the RoNS)…

The real problem is that Ontrack is a part of Kiwirail and therefore must compete with general Treasury funds to get capital spending money (i.e. compete with Health and Education), as road users receive the most benefit from new railways Ontrack should be part of the NZTA and be able to compete with funding from the National Land Transport Fund… Two cases in point, the NLTF pays for PT subsidies as less car users speeds up the remaining car users travel (time savings benefits) and the second case is that the money being spent to reopen the Onehunga spur has been assigned a BCR of 1.7 with 85% of the benefits coming from “time savings” for car users on roads between Onehunga and the CBD…

We will never get the CBD rail tunnel built unless it can compete with funding against projects like Puhoi to Wellsford and that means that Ontrack must become part of the NZTA..!

I often wonder to what extent Farrar and the commentariat over there are in the pockets of the road transport lobby (or are part of it), or whether they are just stuck in the conservatism of dominance of road transport, given that has unfortunately been the prevalent view in Government for the last 50 years.